The case for Huawei in US

Updated: 2012-10-12 14:20

By Dan Steinbock (China Daily)

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Starting in a one-room workshop in Shenzhen in the early 1980s, Huawei is today a global giant generating more than $32 billion in annual revenues and with offices in more than 140 countries.

Despite its global success, Huawei has been rebuffed in the United States time and time again. During the past few years, unspecified allegations in the US have led to severe anti-market measures to block Huawei's expansion efforts. In a report released on Monday, the House intelligence committee recommends that the US block acquisitions or mergers involving Huawei and ZTE. It also recommends that the US government avoid using equipment from the firms.

Huawei entered the US on Valentine's Day in 2001. Despite repeated bids, its efforts to win a major contract from top-tier US carriers AT&T, Sprint, T-Mobile and Verizon have been frustrated.

A few examples: In 2007, Huawei's effort to buy 3Com was thwarted by US government's intervention. In fall 2010, Sprint Nextel solicited bids for a network upgrade. Huawei reportedly offered a deal that would have saved the carrier at least $800 million from its existing costs in its first year of operation alone. But US Congress members launched a letter-writing campaign urging Sprint not to include Huawei, and Gary Locke, then US commerce secretary and present US ambassador to China, called the Sprint CEO to convey his "very deep concerns" about Huawei and national security.

These interventions, in turn, have led to a series of initiatives on Capitol Hill.

While Huawei employs 140,000 people worldwide, less than 1.3 percent of its employees are in the US. In light of business potential, this translates into missed opportunities. If, however, futile friction could be overcome, there are complementary opportunities for Huawei and the US government, companies, innovation and consumers.

Huawei's expansion in the US brings jobs, capital and tax revenues. It continues to exert a major competitive impact on price rivalry, through efficiencies and innovation. It has seven advanced research and development centers and partners with more than 50 higher education institutions in the US, which support high quality jobs and productive capital.

Because of its efforts to ensure cyber security - an end-to-end global cyber security assurance system, independent third-party testing institutes, opened up source code, and former CIO for the United Kingdom government John Suffolk as its global chief cyber security officer - Huawei could be seen as a role model in the ICT sector.

Half of the 56 networks functioning across the world today use Huawei technologies. It is this trust that motivates Huawei's global success. Like Sam Walton's Wal-Mart in the US, Huawei first created a foothold in rural regions, which were neglected by foreign as well as Chinese companies, and only then it proceeded to capture urban centers.

After a difficult transition in the early 2000s, it leveraged its strategy in global markets - starting with developing regions - with the support of US consulting giants, such as IBM. But in the West, almost every story about Huawei begins or ends with speculation on its corporate governance and its founder Ren Zhengfei, who served in the military for five years about three decades ago. The argument is that since Huawei is not public, it must be suspicious.

Yet many winning US companies remain private, like Huawei, to retain their flexibility in the marketplace. Besides, from the Chinese perspective, Huawei's corporate governance has served a function: to retain human capital.

Since 1990, Huawei has rewarded some 65,000 employees with the right to buy Huawei stocks. The stock ownership plan has allowed it to attract and retain talent. Employees hold some 98.6 percent of Huawei's shares. And China's law prevents companies with large employee ownership from going public.

As Huawei continues to globalize, it will seek to reconcile Chinese and global corporate norms. True, the influence of private entrepreneurs in China has increased after 2002. However, Huawei's global success can be attributed to its origins in market-driven Shenzhen, smart strategic moves, and success in the global market.

Overall, the expansion of Chinese companies has led to significant economic contributions in foreign markets in which they operate, through job creation, contributions to GDP and local taxes, says the prestigious World Economic Forum, which considers Huawei an exemplary case.

As long as barriers continue to deter Chinese foreign direct investment in the US, America's trade and investment policy is at risk of being perceived unipolar. In the long run, such perceptions may return to haunt US corporations and their efforts to expand in foreign markets.

In the coming decades, the role of US corporations in the world economy will decrease in relative terms, while those of large emerging economies will gradually increase. Seeking unipolar sanctions in a multipolar world is a sure way of escalating trade and investment conflicts and potentially undermining the activities of American companies worldwide.

A successful outcome in the Huawei case could prove a game-changer by accelerating the flow of investment into the US at a time when inward investment is needed the most. An unsuccessful outcome would have repercussions on US-Chinese relations, far beyond Huawei.

So if there is a security case to be made against Huawei, it should be made publicly and in a specific manner. Serious allegations require serious evidence. And if that security case against Huawei does not exist or if it cannot be made, there is a win-win case for Huawei in the US.

The author is research director of international business at US-based India, China and America Institute, an independent think tank, and a visiting fellow at Shanghai Institutes for International Studies and Singapore EU Center.